Just like George Washington… I can not tell a lie. I have been downright bearish since mid May. At first that strategy paid off gangbusters as stocks tumbled to new…
lows by mid June. And since then being a bear has been…unbearable!
In fact, earlier this week presenting at the MoneyShow I doubled down on my bearish view with this new presentation entitled: Bull or Bear…Which Is It?
My goal was to give a balanced view of the bull case versus the bear case. Indeed there are some reasons to be bullish. Beyond the obvious price action taking place you have signs that…
Inflation could be peaking
No serious dents in employment market
Q2 earnings season better than expected
ISM Services showed a surprising surge last week.
Note I could spend the next hour poking holes in the above bullish arguments. Instead I will just simply say that the for me the preponderance of the evidence still points bearish.
Because yes it could be true that we may have skirted a recession to date, but that doesn’t mean that we will avoid one in the near future with lower prices on the way.
Meaning that inflation may be peaking…but coming down from 8.7% to only 8.5% should not lead anyone to breathe a major sigh of relief.
Especially as that data is as of the end of July. Since then the commodity index has spiked higher as you will see below which means that inflationary pressures are far from gone.
Add on top a non-stop parade of Fed officials singing from the same song sheet that goes like this:
We are going to seriously raise rates…yeah, yeah, yeah
We don’t care how much it makes your teeth grate…yeah, yeah, yeah
We just need to stop prices from so much inflate…yeah, yeah, yeah
(All rights reserved by Reitmeister Economic Sing-A-Long Productions 😉
As those rates go higher it makes borrowing less attractive. This leads to less investment by companies. Which equates to lower spending.
Typically that cycle extends to lower profits, job loss and wider economic pain. And yes, these would all be tell-tale signs of recession and bear markets.
For now, it is clear the bulls are in charge. The next real test is at the 200 day moving average currently at 4,328 (about 1% above Friday’s close). No doubt there should be serious resistance at that level that will test the conviction of investors.
The more they see the potential negatives blowing away…the more buyers there will be in the stock market (SPY)…the more likely we break above 4,328 and get back to resumption of a new bull market.
However, if that foreshadowing of future recession grows larger, then investors at first will pause this rally higher to await further signals. And the more ominous the signals…the more share prices would…
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